Tax Attorney or Accountant? The Difference Is Privilege, and It Matters

Your accountant can be compelled to testify about what you told them. Your tax attorney generally cannot. That single distinction decides which one you should call first.

There is a conversation that happens in accountants' offices more often than anyone admits. A client starts explaining something about cash they did not report, and the accountant stops them — because the accountant knows that if this ever becomes a criminal matter, they can be compelled to testify about what they were just told.

That is the difference between a tax attorney and everyone else who does tax work. Not expertise. Privilege.

Who does what

CPAs and enrolled agents are highly skilled and usually the right choice. The federally authorised tax practitioner privilege that covers them is narrower than attorney-client privilege and, critically, does not apply in criminal proceedings.

When you need a lawyer rather than an accountant

• Any hint of criminal exposure — unreported income, false deductions, unfiled returns over several years, undisclosed foreign accounts
• A criminal investigation division contact. If a special agent contacts you, say nothing and call a tax attorney the same day. Revenue agents handle civil audits; special agents handle criminal ones.
• Large unpaid liabilities requiring negotiated resolution
• Appeals or Tax Court litigation
• Trust fund recovery penalties — where unpaid payroll taxes become personal liability for owners and officers
• Innocent spouse relief — seeking release from a joint liability created by a spouse
• Business structuring with significant tax consequences
• Estate and gift tax planning at scale

Audits, and how they actually work

Most audits are not the confrontation people imagine.

Correspondence audit. A letter asking for documentation on specific items. The overwhelming majority of audits. Answer it, on time, with exactly what was asked for and nothing more.

Office audit. You attend an IRS office with records. Broader in scope.

Field audit. An agent visits your home or business. The most serious civil examination.

Three rules that apply to all of them:

Answer the question asked. Volunteering additional information expands the audit. Auditors are permitted to follow what you hand them.

Never guess. "I think it was around..." becomes an inconsistency later. Say you will check and provide it in writing.

Let a representative attend. A representative with a signed authorisation can attend instead of you. This removes the risk of an off-hand comment, and it is the main practical value of representation at this stage.

If you owe money you cannot pay

The worst response is silence, because collection enforcement escalates automatically. The available routes:

Installment agreement. Monthly payments. Streamlined agreements are available up to certain balances with minimal financial disclosure. Interest and penalties continue accruing, but enforcement generally stops.

Offer in Compromise. Settlement for less than owed, based on reasonable collection potential — essentially assets plus future income capacity. Acceptance rates are far below what advertising suggests, and the calculation is formula-driven rather than negotiable in the way people expect.

Currently not collectible. Where paying anything would prevent you meeting basic living expenses, collection can be suspended. Interest still accrues, and the status is reviewed.

Penalty abatement. First-time abatement is available for taxpayers with a clean compliance history, and reasonable cause abatement for genuine hardship — serious illness, natural disaster, records destroyed. Underused, and often the fastest reduction available.

Innocent spouse relief. Where a joint return understated tax because of your spouse's actions and you did not know.

Bankruptcy. Some older income tax debts can be discharged if strict timing conditions are met. Payroll taxes and fraud penalties generally cannot.

Liens, levies and garnishment

A lien is a legal claim against your property securing the debt. It attaches to everything you own and can be filed publicly, which affects credit and the ability to sell or refinance.

A levy is actual seizure — of bank accounts, wages, receivables. Bank levies typically hold funds for a period before remittance, which is a narrow window to act.

Wage garnishment continues until the debt is paid, an agreement is reached, or the collection period expires.

The IRS must generally issue notice and an opportunity for a hearing before levying. That collection due process hearing is a genuine right and a valuable one — requesting it within the deadline pauses collection while alternatives are considered. People throw the notice away.

Business tax exposure

Two areas produce most of the serious cases.

Payroll taxes. Amounts withheld from employees' wages are held in trust for the government. Failing to remit them creates the trust fund recovery penalty, which can be assessed personally against owners, officers and anyone with authority over payment decisions — regardless of corporate structure. This is the fastest way for a business tax problem to become a personal one.

Worker classification. Treating employees as independent contractors to avoid payroll taxes. Reclassification produces back taxes, interest and penalties across all affected workers and years.

Sales tax operates similarly in many states, and economic nexus rules mean online businesses can owe in states they have never physically entered. See our business law guide for structuring considerations.

Foreign accounts

US persons must report foreign financial accounts exceeding threshold values through the FBAR, and may have additional FATCA reporting on the tax return itself.

Penalties for non-wilful failure are significant. Penalties for wilful failure are severe and can reach a substantial percentage of the account balance per year, with criminal exposure on top.

Voluntary disclosure programmes exist for taxpayers who come forward before the IRS finds them, with meaningfully better outcomes than being discovered. Whether you qualify, and which programme applies, is precisely the kind of question that needs a tax attorney rather than a preparer — because the answer depends partly on whether your conduct was wilful, and discussing that with anyone unprivileged is a mistake.

What it costs

Tax attorneys bill hourly at rates comparable to other specialist lawyers, with flat fees common for defined matters — a single audit response, an installment agreement, a penalty abatement request.

Get in writing what the fee covers and what triggers more. The common surprise is that the quoted fee covers the audit but not the appeal.

The proportionality test is straightforward: for a correspondence audit over a few thousand dollars, an enrolled agent is usually the right choice. Where the exposure runs into tens of thousands, involves multiple years, or carries any criminal risk, the fee is small against what is at stake.

Records, and how long to keep them

Almost every tax dispute is decided by whether you can produce documentation. The general assessment period is three years from filing, extended to six where income was substantially understated, and unlimited where a return was never filed or fraud is alleged.

Practical retention:

• Returns themselves — permanently. They are small, and proving a return was filed defeats the unlimited assessment period.
• Supporting documents — at least seven years. Receipts, bank and brokerage statements, mileage logs, charitable acknowledgements.
• Property records — until seven years after disposal. Purchase, improvements and depreciation determine basis when you sell, sometimes decades later.
• Business records — seven years minimum, longer for asset purchases and payroll.
• Foreign account statements — six years. FBAR has its own longer exposure.

Choosing one

1. Is tax your exclusive practice?
   General practitioners who "also do tax" are not the same thing.
2. Do you have an LLM in taxation, or are you also a CPA?
   Common among genuine specialists.
3. Have you appeared in Tax Court?
   Admission is separate and matters if the case escalates.
4. Have you handled criminal tax matters?
   Essential if there is any exposure.
5. What is your realistic assessment?
   Anyone guaranteeing an Offer in Compromise before reviewing your finances is selling.
6. What does the fee cover?
   Which stages, and what is extra.

Verify the licence through the state bar's public record. For enrolled agents, verify through the IRS directory.

The UK equivalent

HMRC investigations follow a different structure. Code of Practice 9 applies where fraud is suspected and offers the Contractual Disclosure Facility — a route to disclose and avoid prosecution in exchange for full cooperation. Code of Practice 8 covers serious cases without suspected fraud.

Tax specialists in the UK may be solicitors, barristers, chartered tax advisers or accountants. Legal professional privilege applies to solicitors and barristers; advice from accountants is not privileged in the same way, which mirrors the US distinction and matters for the same reason.

State taxes, which people forget entirely

Federal problems get the attention. State tax authorities are frequently more aggressive, move faster, and have fewer of the taxpayer protections built into the federal system.

Residency disputes are the biggest category. States with income tax examine claims that someone moved away, and the tests are factual — where you spend your days, where your home and family are, where you are registered to vote and licensed to drive. People move on paper and keep living in the old state, and the audit finds it.

Sales and use tax nexus. Economic nexus rules mean an online business can owe sales tax in states it has never physically entered, based purely on sales volume. Liability accumulates silently for years before anyone notices.

Payroll tax across state lines. Remote employees create withholding and registration obligations in their own states, which many small employers discover late.

State collection powers are often broader and the appeal routes shorter. Do not assume a state notice is less urgent than a federal one — frequently the opposite is true.

The summary

Use an accountant for returns, planning and routine audits. Use a tax attorney the moment there is any possibility that what you say could be used against you criminally, or when the amounts justify litigation.

Never ignore a notice. Never guess at an answer. Request the hearing before the deadline. And if an accountant stops you mid-sentence and suggests a lawyer, take the suggestion — they are protecting you, not passing you along.

Frequently asked questions